Jim: Now, Mike, our first stock today is Pfizer, and I want to make it clear from the outset that I don't want any crude jokes about this company just because it's the maker of Viagra. You know, remarks like, "It's best to be long Pfizer these days." This is a family paper, of course.

Mike: Fair enough. But what I would say about Pfizer is that it's one of those companies whose products always sound like the names of characters from "Lord of the Rings." Who are "Zoloft" and "Zithromax"--they're the giants who attack the Hobbits in the woods, right? No, they are, respectively, an antidepressant medicine and an antibiotic.

Jim: Why do they come up with such esoteric-sounding names? Although the important thing is that many of these odd-sounding drugs are leaders in the pharmaceutical market. Pfizer has two other new drugs that are big hits--Lipitor for lowering cholesterol and Celebrex, which Pfizer is co-marketing with Monsanto as an arthritis treatment. It's being talked up as maybe the most successful new drug in history.

Mike: In fact, Pfizer's had a string of great successes, which is why this company trades at a price-to-earnings multiple that represents a rich premium over the P/E of the Standard & Poor's 500.

Jim: The simple fact is that Pfizer is the quintessential blue chip in a very strong business. This stock has jumped eight times over in the last five years, compared with a 230% gain in the S&P 500. It now trades for about $114 a share, or about 46 times earnings, and its 3-for-1 split due June 30 is likely to give it another kick.

Mike: And the question we always end up asking about stocks like this is: Has it gotten ahead of itself?

Jim: Not to me. I think regardless of the rich price, this is a fine addition to any portfolio and I would heartily recommend the stock for a lot of reasons.

Mike: One being its new drugs just now hitting the market . . .

Jim: . . . and then there's the pipeline full of other drugs in the late stages of clinical testing.

Mike: Right, and I think in that last comment you really put your finger on the essence of this stock. As much as our editors would like us to disagree more, unfortunately for them, I have to agree with you on this stock.

Jim: I think you'd be crazy not to.

Mike: Well, sometimes that happens. But the pipeline is what makes this stock inviting for the future. Pharmaceutical companies run in and out of favor all the time. The reason is that every one of them on occasion will hit the drugstore lottery, coming up with a product that fills a crying need and is a year or so ahead of the competitive pack.

Jim: And then the thrill is gone.

Mike: Unfortunately, by the time a lot of these drugs get to the market, the government drug approval regimen has taken so long that only a few years remain before their patents expire, at which point you get 14 other forms of the same drug or cheap generics to cut into the original manufacturer's swag.

Jim: So these companies are always on a treadmill. But what makes Pfizer stand out is that it's got more promising medicines in the pipeline. That's not all. It's a very low-debt company, which is remarkable when you consider it spent over $2 billion a year on research and development to come up with new drugs. And Pfizer is an excellent play on the so-called graying of America.

Mike: The aging of the baby boomers.

Jim: Right. And finally, Pfizer is a favorite with medical and doctor groups because of its powerful marketing capability--it's got what is widely thought to be the strongest sales force. That's why Monsanto and others are happy to let Pfizer help them sell products in joint ventures.

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Cadence Design (CDN)

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Jim: Buy

Mike: Buy

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Mike: Jim, our next stock is Cadence Design Systems, which I regard as an outfit that poses the question: How many PhDs does it take to screw up a company?

Jim: Yeah, this is a Silicon Valley company that has fallen from its once-lofty orbit.

Mike: Perhaps the problem is too many Stanford high-tech graduates and not enough Stanford business-school graduates.

Jim: But first how about explaining what they do, if you can? Cadence may be the biggest company in its business, but it's not a household name by any means.

Mike: Sure. Cadence's business is the development of automated systems for the design of integrated circuits--"chips." Why do you need a whole industry devoted to helping another industry design its products? It's because as silicon chips get more complex and powerful, they get to the point where the tiny transistors etched onto the silicon are cheaper and less important to the chip's functioning than the microscopic wires connecting them together. To make the most economical and fastest chips possible, you need to design them so those connections are as short as possible--and finding the right design requires sophisticated software, which Cadence and its rivals provide.

Jim: Well done, partner. And that's why many big chip makers are customers.